Tax Tips Blog Posts
April 30, 2018
Are you planning doing your own accounting this year? You’re probably giving away more money than you should. Doing your own accounting may seem like the cheapest option, but hiring a professional accounting service will actually cost less. One of the biggest mistakes both individuals and small businesses make is to take on their own accounting. This can lead to a lot of missed opportunities and deductions. You’re also more likely to make a mistake that could lead to further problems. By taking advantage of accounting services, you’ll have access to tax consulting, accounting analysis, and several other services that can save you thousands.
Tax consulting can help minimize several pain points you’d experience by doing your accounting yourself. Expert accountants can help create long-term tax strategies as well as filing all required tax returns, business, personal, employer, sales tax, and CAT forms. Tax consulting is more than just filing the paperwork for you. We’ll also work with you and teach you:
- How to properly expense items
- How to legally minimize your tax obligation
- How to implement proactive tax reduction strategies
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April 16, 2018
Employing family members can be a rewarding experience for business owners. With tax season underway, some questions are hard to answer. What forms do I have to file for my kids? Do I need separate forms for family and non-family employees? What if my spouse works with me? These are all great questions and often have situational answers. For instance, your children will have different tax requirements than other employees that are minors. Children also have different tax needs based on whether your family business is a corporation. To help simplify some of the confusion, here are a couple requirements for both children and other family members to help you during tax season.
Employing Your Children
For most small business owners, children are an invaluable part of the business. They can provide much-needed help during busy times and are more likely to be productive employees than other minors. While some children do work for free, there are a few things you need to know for those that are paid.
- Federal unemployment tax is not required on the wages of your children.
- Social security and Medicare (FICA) taxes are only required if the business is not a corporation.
- You are required to withhold income taxes from your children’s wages.
Employing Adult Family Members
Children aren’t the only family members in a family business. Siblings and parents are often staples of a family business and are usually more loyal to the business than traditional employees. If you pay wages to any family member, make sure you know these key points.
- Each family member needs a W-4 when hired and you are required to withhold federal income taxes.
- Family member pay should be included in your unemployment tax.
- Overtime works the same as a regular employee; One and a half times base pay after forty hours.
Employing family members is a great route for many small business owners. BIG can help make your family business’ taxes a breeze with our small business accounting services.
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March 15, 2018
Do you work as a freelancer or independent contractor? Chances are you’ll receive a 1099 form. If you make more than $600 with a client, they are required to send you a 1099 form by the end of January. Instead of of receiving a typical W-2 that traditional employees receive, most freelancers will receive the 1099-MISC form that is used to confirm that all their earnings are reported to the IRS.
While this can be overwhelming for new freelancers and independent contractors, a little organization can go a long way. Proper organization allows you to maximize your tax write-offs and keep more of your earnings. Deductions such as car expenses and home office deductions are a couple of the biggest tax breaks you can get.
Car expenses including mileage can provide one of the biggest tax write-offs for freelancers. The easiest method to use is to claim the standard mileage rate. This allows you to write off 54 cents off every mile you drive for business-related purposes. These miles include:
- Driving while working
- Going to meet clients at a seperate location
- Heading out of town on business
The standard mileage rate takes into account gas, insurance, maintenance, depreciation, and insurance. While you can use the actual method of deducting your car expenses, the standard mileage rate is far easier to track and report.
Home Office Expenses
If you’re running an independent business from your home, you can potentially write off part of your home expenses. As long as you have a dedicated space that serves as your primary place of business and is used exclusively for work, you can use it as a tax write-off. Using the simplified method is the easiest way to deduct your home office. It includes everything in your home office and can be figured out by finding the square footage of your home office. Here are a few things you need to know:
- You can deduct $5 per square foot.
- You can only deduct up to 300 square feet per year.
- Total deduction cannot exceed $1500.
Make sure you don’t miss out on any deductions. BIG offers professional tax services to make sure you get the most tax write-offs possible.
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February 28, 2018
Tax identity theft is frequently the single biggest type of identity theft according to the Federal Trade Commision. Finding out you’re a victim of tax identity theft can be a nerve-racking experience. By the time you learn you’re a victim, it’s usually too late. At that point, your options are slim and usually limited to preventing future damage.
The best approach is to take preventative measures and avoid identity theft altogether. While there are multiple methods to be proactive, you can make the biggest impact by protecting your identity and avoiding scams. These two approaches will limit the exposure of your personal information to unauthorized eyes and dramatically lower your risk.
Protect Your Personal Information
Information such as your Social Security number, birth date, and other personal information should be protected at all times. The only types of people that should see this information are banking institutions, tax advisors, lending companies, and similar businesses. These types of institutions are mindful on how they ask for personal information as well. They will never have you send your SSN through email or any other unsecure method.
In addition to only giving personal information to certain types of people, here are a few more tips that will help keep you safe:
- Don’t carry your Social Security card with you
Regularly change your passwords online
Keep your firewall and antivirus on your computer installed and up-to-date
As we move deeper into the digital age, scammers are more creative and deceitful than ever. Their scams are becoming more elaborate and harder to detect. Many tax identity theft victims unknowingly give away their personal information without knowing they are dealing with a fraudster.
Most victims willingly give their information when they receive threatening phone calls, emails, or postal mail claiming the IRS will take some type of action if the victim doesn’t cooperate. Threats of foreclosure and jail time are usually enough to scare someone enough to send whatever information is requested.
To avoid scams, there a few things the IRS recommends knowing:
You’ll never receive a call demanding immediate payment or any tax-related call from the IRS without first mailing you a bill. If you haven’t received the bill in the mail, be aware you could be dealing with a scam.
If you’ve completed your tax plan and don’t believe you owe any taxes, you can report any potential scam you encounter to the Treasury Inspector General for Tax Administration.
If you’re unsure on whether a person is who they claim, contact the institution directly and ask.
Tax identity theft can be a scary situation if your caught in it. By protecting your personal information and being mindful of scams, you can greatly reduce your risk.
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February 15, 2018
According to a recent Gallup study, 43% of Americans report at least part of their time working from home. With more employees making the transition to home offices, the question inevitably comes up; What can I deduct?
The IRS has two requirements that need to be met in order to claim the home office deduction. The first requirement is the space you intend to claim needs to be used as a home office regularly and excessively. The second is your home office has to be the principal place of your business.
Regular and Exclusive Use
The IRS is very particular about this portion. You must use your home office frequently for it to be considered eligible. This means that if you use your laptop on the couch, kitchen table, and the bedroom, you’re not eligible for the home office deduction. To keep your audit risk low, make sure your home office is:
- An established place where you complete the majority of your work
- Preferably a separate room that is designated for work only
- A place where you work for a minimum of 12 hours a week
Principal Place of Your Business
Flexibility is a benefit here when it comes to your home office. The IRS is fairly understanding to the location of your home office as long as it’s used primarily for work. That means your garage, a corner of the living room, or a spare bedroom can all be used as a home office. To take advantage of the home office deduction, here are a few things you should know:
- Choosing the simplified home office deduction allows you to allocate a percentage of your home as your home office.
- Separate stand-alone buildings can be deducted if they are used primarily for business purposes.
- Your home office should not be a communal area such as a family computer room.
Follow these two guidelines and you’ll be well on your way to claiming your home office tax deduction. To help maximize your deductions, BIG can help you get the most back with our tax preparation services.
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January 29, 2018
Freelancers are getting a big help from the new tax plan's pass-through deduction.
You may not realize you are doing this as a freelancer, but you are. If you end up claiming the revenue your LLC or S-Corp makes as your income and use itemized deductions to lower your taxes owned then you are participating in the pass-through deduction.
This pass-through provision will allow you / freelancers to deduct 20% of your revenue from your taxable income.
With the new law it has loosened restrictions so that not only the rich will benefit. You will get a nice savings as well.
This deduction, paired with new, lower tax rates means most freelancers will pay less in federal taxes in 2018 than they would have under the former tax code.
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July 18, 2017
April 15th, the date which keeps tax accountants awake at night, has come and gone. But with that sigh of relief, an unfamiliar sense of dread can come; the question, “what do I do now?” may come to mind. Well, the answer is plenty.
Accountants do quite a bit more than taxes. Like here at BIG, accountants can help companies and individuals determine and reach their financial goals. Corporations need their financial data analyzed so they can make savvy business decisions, and individuals need help either bolstering their retirement accounts or growing other areas.
Did you really think tax season was over? People love to procrastinate, and are willing to file an extension if it means they can continue to delay work. While obviously the amount of extension work is substantially less than the normal filing period, it is still work that needs to be done by someone.
Workshops And Seminars
A lot of accountants are introverted and try to steer clear of the limelight, but this is an excellent way to create additional revenue. People like Tony Robbins have achieved great success because the general public is hungry to learn more about finances, especially from people with credentials like CPAs. With that said, tutoring people on a software program like Excel is something even the most shy of accountants is capable of.
The end of tax season definitely calls for celebration. But don’t rest on your laurels for too long! There’s a lot of people out there who need financial help, and accountants are some of the most qualified experts to dispense advice.
May 17, 2017
Just because tax season is over, doesn’t mean that you’re done with nasty taxes for good (though even we wish this were the case!). Do yourself a favor and avoid the toxic anxiety tax season welcomes by taking just a few easy steps to stay organized for next year.
1. Look over your withholdings – no one wants to have more money taken away from them than necessary obviously. So it always shocks us when people who have employers that withhold money from their paycheck automatically don’t take the time to make sure the correct amount is getting taken out!
2. Evaluate your retirement plan – be honest; are you really saving enough for retirement? Most Americans have no idea, as a Bank of America Merrily Lynch survey found that 81% of Americans don’t know how much money they will need for retirement! So it’s very important to be aware that IRS limits on tax-deductible IRA contributions can change from year to year.
3. Make an income forecast and estimate possible taxes – all businesses regularly project how much revenue they expect to gain over the year in order to gauge expenses. Treat yourself and your family like your own business and do some serious thinking about how much money you’ll think you’ll have over the year, including possible major expenses (especially unexpected ones), and what you might have to pay in taxes.
Taxes aren’t fun, but that doesn’t mean they have to be torture. Do your future self a big favor and ease the stress by taking some easy proactive steps. Your future self will want to hug you for your efforts!
May 3, 2017
Tax and Health-Care Reform Back in the Spotlight
Republican efforts to repeal and replace the Affordable Care Act (ACA) failed in late March. In the immediate aftermath, it appeared that health-care reform efforts would be set aside in favor of advancing a tax reform agenda.1 Then, in a one-two punch that surprised many, the White House called for a vote on a revised repeal-and-replace health-care plan and announced the broad outline of a new tax reform plan.2 It would be a mistake to consider the two completely separate efforts, because in some ways they are actually closely connected.
White House announces new tax proposals in broad terms
The tax reform plan announced by the White House includes reducing the current seven tax brackets to just three: 10%, 25%, and 35%. It proposes doubling the standard deduction amount and eliminating both the alternative minimum tax (AMT) and the federal estate tax. The plan would preserve existing deductions for home mortgage interest and charitable donations, but would eliminate most other deductions, including the ability to deduct state and local taxes.3 Essentially, this was a "stake in the sand" to establish a starting point for negotiations with Congress. Details must be determined, and changes are likely as discussions progress.
Tax provisions also a part of health-care reform
The ACA contains significant tax provisions, including the 3.8% net investment income tax and the 0.9% Medicare payroll surtax, which both target high-income individuals. The initial repeal-and-replacement effort would have eliminated or modified many ACA tax provisions — that's almost certain to be true for a revised plan as well. And any health-care reform package is likely to balance lost tax revenue with reductions or limits to subsidies and Medicaid outlays. If the ACA tax provisions are not addressed in a health-care reform package, they're likely to be included as part of the tax reform discussion, increasing the scope and complexity of the tax debate. In fact, the White House tax reform announcement specifically called for repeal of the 3.8% net investment income tax.4
Further complicating the issue, Republican legislators — who lack 60 votes in the Senate to overcome a Democratic filibuster — plan to use a process called budget reconciliation to pass both health and tax reform legislation with a simple majority vote. Under budget reconciliation rules, any reform measure must not increase the federal deficit beyond a 10-year period. This restriction means that unless tax cuts are offset by revenue savings elsewhere (e.g., spending cuts or reduced deductions), they must expire after 10 years.
1) See for example Nick Timiraos and Richard Rubin, "GOP Shifts Focus to Next Target: Tax Code Revamp," Wall Street Journal, March 25, 2017
2) John T. Bennett, "White House: Final Health Care Deal Unlikely This Week," Roll Call, April 26, 2017, and Briefing by Steven Mnuchin, Secretary of Commerce, and Gary Cohn, Director of the National Economic Council, April 26, 2017, whitehouse.gov
3,4) Briefing by Steven Mnuchin, Secretary of Commerce, and Gary Cohn, Director of the National Economic Council, April 26, 2017, whitehouse.gov
April 18, 2017
Whether you choose to do your taxes yourself, or have a tax professional sift through the mess for you, it’s vital to be aware of changes in the tax codes. Understanding these changes will help you make decisions which result in growth for your business and avoid dangerous pitfalls which sink all of your hard work.
This could be the final year of “bonus deprecation”
Bonus deprecation is a rule which allows businesses to deduct 50% of the deprecation value of certain equipment and software purchases made in the first year. It’s anticipated that the allowed percentage will fall in the coming years.
Filing deadlines have changed
Deadlines for several different kinds of businesses have changed. C-corporations which use IRS form 1120 need to file their taxes by April 15th. S-corporations who use form 1120-S now need to file by March 15th, as do partnerships that use form 1120. Not filing on time is one of the biggest mistakes entrepreneurs make, which often lead to huge penalties from the IRS.
Section 179 has changes as well
Section 179 of the tax code allows businesses to deduct $500,000 from purchases that do not cost more than $2 million. There are some requirements to use this deduction, such as using the equipment the same year it is purchased, as well as being used for business purposes at least 50% of the time.
As you can see, and most likely already know, handling your business’s taxes is no easy feat. But a clear picture of this landscape is a necessary evil in order to gain an understanding of your financial obligations and to become aware of any needs for loans. If it ever becomes too much and you want a helping hand, we’re always here to offer our guidance.